Soy and corn: how the market behaved - 23/01/2023

For soybeans, the past week was marked by a drop in Chicago prices. Weather conditions in South America continued to be the center of market attention. Furthermore, the increase in North American exports was also closely watched. Therefore, the contract due in March/23 ended the week being quoted at U＄15,09 per bushel (-1,24%) and the contract due in May/23, at U＄15,04 per bushel (- 1,51%).

Climate volatility continues to cause significant fluctuations in Chicago's prices, especially when the situation in Argentina is closely observed. Expectations of an improvement in weather conditions in Argentina in the coming weeks represented a relief for the market, however, according to the Buenos Aires Grain Exchange (BCBA), the losses are already irreversible. Each week, the rate of crops in good condition decreases (from 5 to 3%), and crops in poor or very poor condition increases (from 56 to 60%). This reinforces speculation of a historic harvest failure in the country.

In Brazil, weather conditions still remain quite favorable, but are beginning to present points of attention in some regions. In Rio Grande do Sul, irregular rainfall is already beginning to significantly compromise the good development of plantations and, on the other hand, in Mato Grosso, the continuation of rainfall is harming the progress of the harvest, but still without generating excessive concern.

Regarding North American exports, the week was marked by a dose of optimism, given the 28% increase compared to the previous week, totaling just over 2 million tons sold, according to the United States Department of Agriculture (USDA). China was the main buyer, representing more than 60% of the total volume exported.

The US currency closed the week up +1,96%, closing Friday at R＄5,21. On the international scene, the market closed the week with greater risk aversion, reflecting the possibility of a recession in the United States. In the domestic scenario, the market followed the possible directions regarding the new government's economic policy.

With the fall of Chicago and the dollar, there was a slight devaluation in Brazilian prices, compared to the previous week.

What to expect from the soybean market?

Today, the Chinese New Year holiday begins in China. Historically, the country reduces its commercial movement during celebrations, including soybean purchases. With the drop in demand, there may be a reduction in the price of grain in Chicago, given the importance of the Asian country.

The National Institute of Meteorology (Inmet) projects continued heavy rainfall, mainly for the regions: North, Central-West and Southeast. Rio Grande do Sul is expected to receive localized rain, remaining a critical scenario. For Argentina, the National Meteorological Service (SMN) signals the presence of more voluminous rain in much of the producing belt. If these conditions are confirmed, it could cause a drop in Chicago prices.

Brazil's internal conditions should greatly influence the value of the dollar, but the downward movement should predominate. The country remains very attractive to receive foreign capital as interest rates are still at high levels.

Corn

Last week was marked by a decrease in business in the domestic market, where producers showed some resistance in negotiating, hoping to obtain better prices in the coming days. Despite this, there was a devaluation of physical market prices. The external scenario was marked by stability, reflecting the improvement in the weather in Argentina, closing on Friday at ＄6,77 per bushel (+0,15%) for the March/23 contract.

Climate volatility also reflects on the value of corn, where Argentina is the main point of attention. The Buenos Aires Cereals Exchange (BCBA) remains very pessimistic in relation to production in the country of Argentina, where it presented another week of decrease in the indices of crops in good condition (from 7 to 5%). Furthermore, the country could lose 5,5 million tons from the initial projection, totaling 44,5 million tons. This scenario could be alleviated if the forecast rains are confirmed.

The Brazilian scenario remains quite optimistic, with a large volume of corn expected for the second harvest (safrinha 2023), which will reach the market at the end of the first half of the year, if weather conditions are favorable. In relation to the current harvest (2022/23), Rio Grande do Sul has already started harvesting work, bringing disappointing numbers due to the lack of rain. According to Emater-RS, in its weekly report, it presents losses above 50% of the initial projection in some regions.

In relation to exports, the Foreign Trade Secretariat (Secex) reported, on the 16th, a volume of 2,95 million tons exported in just 10 working days. As a result, the entire volume for January 2022 has already been exceeded. If it continues at this pace, Brazil could close the month with a record of over 6 million tons.

What to expect from the corn market?

The climate in South America will continue to be a very important factor in the evolution of planting and crop development. The National Institute of Meteorology (Inmet) projects heavy rainfall for all of Brazil, with the exception of Rio Grande do Sul, which will have localized rainfall. In Argentina, the National Meteorological Service (SMN) signals rain forecasts in the Argentine production belt, mainly the provinces of Córdoba and part of Buenos Aires, which could favor the continuity of planting.

Despite China's absence this week, the market will likely continue to be strong in terms of exports, serving countries in the Middle East, Africa and Europe. With the reduction of Brazilian stocks, the domestic market must be present to guarantee short-term supply, until the beginning of the harvest.

The optimism of a harvest with great production should continue this week, given the continued favorable weather.

Therefore, Brazilian prices may experience a week of devaluation in relation to the previous week, with the scenario of optimistic supply in the market prevailing.